Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 1 of 8
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`TWILIO, INC.,
`Plaintiff,
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`v.
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`TELESIGN CORPORATION,
`Defendant.
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`Case No.16-cv-06925-LHK (SVK)
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`
`ORDER GRANTING IN PART
`TELESIGN'S MOTION TO COMPEL
`AMENDED DAMAGES CONTENTIONS
`Re: Dkt. No. 121
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`I.
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`Introduction
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`Plaintiff Twilio, Inc. (“Twilio”) initiated this action in December 2016. The parties filed
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`their joint case management statement on February 22, 2017. ECF 45. In accordance with the
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`schedule set forth in the Patent Local Rules, Twilio served its damages contentions on June 20,
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`2017; Defendant Telesign Corporation (“Telesign”) served its responsive damages contentions on
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`July 20, 2017. The parties have engaged in meet and confer efforts, to varying degrees of success.
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`On September 21, 2017, Telesign filed this motion to compel Twilio’s compliance with Patent
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`Local Rule 3-8. The parties have been ordered to an early mediation (ECF 74, 130), which is
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`scheduled for December 4, 2017.
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`Following this Court’s assessment of the requirements of the Patent Local Rules, the
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`arguments presented in the parties’ briefs and at the hearing held on November 14, 2017,
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`Telesign’s motion to compel is granted in part. Twilio will supplement its damages contentions
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`with a computation of damages, as detailed below, no later than November 29, 2017. In addition,
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`the parties will continue rigorous meet and confer efforts and produce additional documents as
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`directed at the hearing and reflected in the record.
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 2 of 8
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`II.
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`The Patent Local Rules Require a Computation of Damages
`The Patent Local Rules1 were amended as of January 2017, to address disclosure of
`damages information, and challenges in this District to L.R. 3-8 are still relatively few. This case,
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`where Twilio has not provided either the reasonable estimate addressed in L.R. 2(b)(5) or a
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`computation as contemplated in L.R. 3-8, presents an opportunity to address the Local Rule
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`requirements to provide clarity to the parties, particularly in light of the impending mediation on
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`December 4, 2107.
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`A. The Rules
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`To orient itself and the parties to the disclosure obligations set forth in the Local Rules, the
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`Court finds it helpful to begin with a relevant definition:
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`noun: disclosure
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`1.
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`the action of making new or secret information known.
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`"A judge ordered the disclosure of the government documents."
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`Disclosure, Oxford English Dictionary (3rd Ed. 2010) (Emphasis added).
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`The first instance under the Local Rules where parties are to make known damages
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`calculations is the initial case management conference. Local Rule 2(b)(5), in requiring a good
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`faith estimate at the initial case management conference, provides:
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`2. GENERAL PROVISIONS
` . . .
` (b) Initial Case Management Conference. When the parties
`confer pursuant to Fed. R. Civ. P. 26(f), in addition to the matters
`covered by Fed. R. Civ. P. 26, the parties shall discuss and address
`in the Case Management Statement filed pursuant to Fed. R. Civ. P.
`26(f) and Civil L.R. 16-9, the following topics:
`. . .
` (5) The parties shall provide the court with a non-binding,
`good-faith estimate of the damages range expected for the case
`along with an explanation for the estimates. If either party is
`unable to provide such information, that party shall explain why it
`cannot and what specific information is needed before it can do so.
`Such party shall also state the time by which it should be in a
`position to provide that estimate and explanation. (Emphasis
`added.)
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`1 All references to the Local Rules are references to the Norther District of California Patent Local
`Rules and are hereinafter indicated by “L.R.”
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 3 of 8
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`Ninety days later, L.R. 3-8 requires a computation of damages, specifically:
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`3. PATENT DISCLOSURES
`. . .
`3-8. Damages Contentions
`Not later than 50 days after service of the Invalidity
`Contentions, each party asserting infringement shall:
`(a) Identify each of the category(-ies) of damages it is
`seeking for the asserted infringement, as well as its theories of
`recovery, factual support for those theories, and computations of
`damages within each category, including:
`1. lost profits;
`2. price erosion;
`3. convoyed or collateral sales;
`4. reasonable royalty; and
`5. any other form of damages.
`(b) To the extent a party contends it is unable to provide a
`fulsome response to the disclosures required by this rule, it shall
`identify the information it requires. (Emphasis added.)
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`Similarly, the defendant has an obligation to make known, with specificity, its
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`defenses to the damages claimed:
`3-9. Responsive Damages Contentions
`Not later than 30 days after service of the Damages
`Contentions served pursuant to Patent L.R. 3-8, each party denying
`infringement shall identify specifically how and why it disagrees
`with those contentions. This should include the party’s affirmative
`position on each issue. To the extent a party contends it is unable to
`provide a fulsome response to the disclosures required by this rule, it
`shall identify the information it requires.
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`B. Applying the Local Rules in Litigation
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`The requirements of L.R. 3-8 could not be more clear: identify the theories of recovery;
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`identify the known facts that support the theories; do the math. A plaintiff’s persistent deference
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`to a future expert report, as well as a defendant’s insistence on a final expert opinion, is misplaced.
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`Local Rule 3-8 does not require certainty, and it is not fairly interpreted as replacing the robust
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`analysis of a patent damages expert report. It is worth noting that unlike the more rigorous
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`disclosure requirements for infringement and invalidity contentions (see L.R. 3-1, L.R. 3-3), there
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`is no “good cause” threshold for amendment of damages contentions, nor is there even a
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`requirement to amend the contentions. See L.R. 3-6. There is ample room between the initial
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`“non-binding, good faith estimate of the damages range” contemplated by L.R. 2(b)(5) and a
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`damages expert’s report pursuant to Federal Rule of Civil Procedure 26 for meaningful disclosure,
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 4 of 8
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`including a computation, under L.R. 3-8.
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`The timing as to when a plaintiff must provide a computation of damages is not arbitrary.
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`The computation follows the disclosure of infringement and invalidity contentions to allow for
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`focus on the actual accused instrumentalities. The Sedona Conference Commentary on Case
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`Management of Patent Damages and Remedies Issues: Proposed Model Local Rule for Damages
`Contentions, at p. 4 (April 2016, public comment version).2 Yet the damages computation is
`provided early enough in the course of fact discovery to inform the parties and the court on issues
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`of relevance and proportionality. Id. Finally, the reveal of the computation of damages in the time
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`frame set forth in L.R. 3-8 creates a potential opportunity for meaningful settlement discussions.
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`Id.
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`The expectation built into L.R. 3-8, as well as L.R. 3-9, that there is discovery—perhaps
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`significant discovery—still to be conducted at the time of computation is not properly construed as
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`an opportunity to ignore the disclosure obligations all together. Contending one is unable to
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`provide a damages calculation should be considered the exception, not the default, as each party
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`exercises its best, good faith efforts to comply with this Court’s Local Rules. Where the exception
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`lies, and a party feels compelled to state that it has no alternative but to identify additional
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`information it must acquire before it can comply with a particular component of its disclosure
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`obligations, such identification must be specific: 1. Which outstanding discovery request is
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`directed to the particular missing fact? 2. What is the status of meet and confer efforts between
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`the parties to facilitate a timely response? 3. When is a response due and, once received, on what
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`date will the party comply with its disclosure obligation? A party’s failure to provide this
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`information with a high degree of specificity undermines an argument that the information is
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`necessary for a computation of damages.
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`The Court notes that L.R. 3-8 and L.R. 3-9 do not directly address apportionment. The
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`Federal Circuit requires that a damages opinion provide an evidentiary basis for the apportionment
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`2 Available at https://thesedonaconference.org/publication/The%20Sedona%20Conference%
`20Commentary%20on%20Case%20Management%20of%20Patent%20Damages%20and%20Rem
`edies%20Issues%3A%20Proposed%20Model%20Local%20Rule%20for%20Damages%20Conten
`tions
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 5 of 8
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`of damages between the patented feature and the unpatented features. See Uniloc USA, Inc. v.
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`Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011). Apportionment is an extremely fact-
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`intensive exercise requiring more discovery and analysis than is likely to be completed at the
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`juncture of the damages computation required by L.R. 3-8. Nevertheless, the apportionment
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`requirement does not obviate the need to compute damages under L.R. 3-8. A plaintiff should, at
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`a minimum, identify the likely factors that will be considered in its apportionment calculation,
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`quantify those factors to the extent possible, and identify the outstanding discovery directed to
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`quantifying these factors with the particularity outlined above.
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`Notwithstanding the challenges of determining a viable computation of damages prior to
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`the close of fact discovery, in cases such as the present one it simply is not credible that a full year
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`after the filing of the complaint, which certainly followed a diligent investigation, a plaintiff is
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`unable to quantify, with reasonableness if not certainty, the damages it will seek at trial. Nor is it
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`credible that a plaintiff cannot break that quantification into elements of a computation: a royalty
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`base, a royalty rate, and other potential factors that will compose its alleged damages. Indeed,
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`when a party fails to provide even a non-binding estimated range of damages as required by
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`L.R. 2(b)(5), its failure to comply with L.R. 3-8 further reflects an unwillingness, rather than an
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`inability, to provide a computation of damages. With the foregoing guidelines in mind, the Court
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`turns to the contentions at issue.
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`C. Damages Contentions in the Present Case
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`i. Twilio’s Damages Contentions
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`In its opening, Twilio’s damages contentions present a number of arguments generously
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`construed to relate to its obligations under L.R. 3-8. Twilio then addresses each of the Georgia-
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`Pacific factors, primarily, but not exclusively, identifying broad categories of documents it
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`contends are necessary for its calculations. The Court does not find it productive at this juncture to
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`review Twilio’s approach in detail but provides direction as to the form and substance of damages
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`contentions under L.R. 3-8 and L.R. 3-9 by addressing a few general points.
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` Briefing in the disclosure statement on the legal parameters for treble damages is
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`unnecessary. Local Rule 3-1 already requires that a party set forth the basis for an
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 6 of 8
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`allegation of willful infringement. If, for completeness, a plaintiff wishes to
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`restate the contention, a short recitation of relevant facts is all that is necessary.
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` Similarly, a brief in support of injunctive relief is unnecessary. L.R. 3-8 and L.R.
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`3-9 are directed to damages. While not inappropriate to state that a party intends to
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`seek an injunction, the extensive legal and factual argument for such relief
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`obfuscates the objective of L.R. 3-8 which is to provide a computation of damages.
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` Reservation of the right to amend after every instance where a plaintiff either
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`discloses or comes close to disclosing a fact in support of its damages theories is
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`unnecessary. Local Rule 3-8 does not foreclose future adjustments to the damages
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`computation. If a party feels compelled, however, to reserve its rights to continue
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`to develop its damages calculations, a single reservation at the outset of the
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`contentions will suffice.
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`ii. Telesign’s Responsive Damages Contentions
`Similarly, under L.R. 3-9, a defendant must resist making non-infringement and invalidity
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`arguments throughout its response to plaintiff’s damages contentions. Responsive contentions are
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`the place to set forth for the plaintiff and the court where defendant finds factual discrepancies in
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`plaintiff’s damages theories and computations, assuming a finding of liability. For the reasons
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`stated above, briefs in opposition to claims of willful infringement and/or injunctive relief are not
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`only unhelpful but detract from the ability of the responsive contentions to educate the court as to
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`pertinent issues, such as proportionality.
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`iii. Status of Production of Relevant Documents
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`Twilio’s Contentions and Opposition identify numerous categories of documents that it
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`claims are necessary for a calculation of damages. Yet, Twilio identifies only one specific request
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`for production: All documents related to the determination of a reasonable royalty. ECF 101-5 at
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`3. Such a request may be helpful as a catchall discovery demand, but is not, without more, an
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`adequate foundation upon which to complain that a party lacks sufficient information to compute
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`damages.
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`Telesign, in turn, argues repeatedly that it has produced the documents required by the
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 7 of 8
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`Local Rules and that such productions should be sufficient for a computation of damages. While
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`the production requirements of L.R. 3-4 are a good place to start, they are merely the start, not the
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`end, of Telesign’s obligations. Telesign has an obligation to engage in good faith meet and confer
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`efforts with Twilio to reach compromise on the additional data to be produced.
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`At the hearing, Twilio helpfully narrowed the categories of necessary documents to four, at
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`least for purposes of its immediate computation obligations and the December mediation, and
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`updated the Court as to the meet and confer status of each. Telesign’s production obligations as to
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`these categories, including deadlines, are set forth in the record of the hearing. The Court strongly
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`urges the parties to continue their meet and confer efforts with regards to their discovery
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`obligations and to that end provides the following frame of reference. It is not uncommon in
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`patent damages discovery for the plaintiff to seek a complete financial history of all of defendant’s
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`products. Similarly, the defendant often seeks to limit production to an incredibly narrow base
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`and time frame. Where plaintiff demands the beach, defendant responds with a few grains of
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`sand. It is counsel’s duty to educate their clients on the relevant law as well as the requirements of
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`the Local Rules and to meet and confer in good faith to allow both sides to fulfill those
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`obligations. Only when there is an actual impasse, an inability to find a reasonable compromise,
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`should the dispute come to court. Some of Twilio’s demands, as framed in its contentions, are
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`aggressively overbroad and beyond the bounds of relevance and proportionality. Similarly,
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`several of Telesign’s objections to production are facially not well taken, particularly in light of
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`well-established factors of apportionment. With these cautions in mind, the parties must turn their
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`attention to earnest meet and confer efforts.
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`//
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`Case 5:16-cv-06925-LHK Document 152 Filed 11/17/17 Page 8 of 8
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`1. Twilio is to supplement its damages contentions with a reasonable good faith computation
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`of damages no later than November 29, 2017. The computation must identify the following:
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`CONCLUSION
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`o royalty base(s)
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`o royalty rate(s)
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`o date(s) of the hypothetical negotiation currently used,
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`o factors identified to date that are or will be used in apportionment, and where
`possible a quantification of those factors.
`As set forth above, this computation is not expected to be Twilio’s final computation of
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`damages, and the computation may change without amendment to the contentions. The Court
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`notes, however, that a new theory of recovery (such as lost profits instead of or in addition to a
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`reasonable royalty), would require amendment to the damages contentions.
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`2. The parties met and conferred on usage metric documents to be produced by Telesign. At
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`the hearing, the parties identified a subset of usage metric documents for accelerated production.
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`Telesign is to produce and/or confirm completion of production of those certain damages-related
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`documents by November 22, 2017, in accordance with the hearing record. Any production is to
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`begin promptly and continue on a rolling basis.
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`3. In addition to the four specific categories of documents addressed at the hearing, the
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`parties are ordered to continue good faith meet and confer efforts to resolve issues regarding the
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`scope of outstanding requests of damages-related documents and the timing of production,
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`including identification of a date for completion of production of damages-related documents.
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`The Court reminds the parties that the case management schedule allows only 30 days from the
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`close of fact discovery for opening expert reports.
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`SO ORDERED.
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`Dated: November 17, 2017
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`SUSAN VAN KEULEN
`United States Magistrate Judge
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